Japan Core Machinery Orders Increase Unexpectedly In February

4/11/2012 12:05 AM ET

Japan's core machinery orders increased unexpectedly in February, signaling a continued recovery in capital spending which could support the economy that is still grappling with deflation, strong yen and the impacts of last year's earthquake.

The Cabinet Office said Wednesday that the machinery orders received by Japan's private sector firms, excluding the volatile ones for ships and orders from electric power companies, increased a seasonally adjusted 4.8 percent in February. Economists expected orders to fall 0.8 percent following a 3.4 percent gain in the preceding month.

Compared to last year, core machinery orders rose 8.9 percent in February, faster than a 5.7 percent increase in January. Expectations were for much weaker growth of 3 percent.

Core machinery orders are a key indicator of capital spending in the economy. Official data show that in the fourth quarter of 2011, capital spending jumped 7.6 percent on year. This was the largest gain since the first quarter of 2007.

The total value of machinery orders received by 280 manufacturers operating in Japan decreased 14.5 percent in February from the previous month on a seasonally adjusted basis.

Machinery orders from the non-manufacturing sector fell a seasonally adjusted 9.4 percent from a month earlier.

In a report in February, the government projected 2.3 percent increase in core machinery orders for the January-March period.
According to Cabinet Office data released last month, the economy contracted 0.2 percent sequentially in the fourth quarter. This translates into an annualised contraction of 0.7 percent in real, price-adjusted terms. Capital spending rose 4.8 percent compared to previous three months, in a sign that strong domestic demand will help the ongoing economic recovery.

During the monetary policy meeting on Tuesday, the Bank of Japan refrained from further monetary easing and said that the economy is showing some signs of picking up. In February, the central bank expanded the size of the asset purchase by JPY 10 trillion as strong yen threatened to undermine a steady economic recovery.

Separately, the BoJ reported today that bank lending growth accelerated to 0.8 percent in March from 0.6 percent in February. Average outstanding loans held by the country's major, regional as well as shinkin banks stood at JPY 459.7 trillion at the end of the month.